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Options for an immediate employment and social-policy response to COVID-19

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Options for an immediate employment and social-policy response to COVID-19

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Supporting people and companies to deal with COVID-19: Options for an immediate employment and social policy response

Stefano Scarpetta, Monika Queisser, Andrea Garnero, Sebastian Königs 12 April 2020

The widespread outbreak of the COVID-19 virus poses an unprecedented, major challenge to our economies and societies. As the global economy faces its biggest shock since the financial crisis, countries must “act fast and do whatever it takes” (Baldwin and Weder di Mauro 2020). Several recent contributions here on VoxEU.org have focused on the urgent macroeconomic measures needed to allow countries to weather the “economic hurricane” without defaulting. But what are the measures that workers and companies need most as the crisis unfolds? 

Containing and mitigating the spread and infection rate of the coronavirus SARS-CoV-2 is the utmost priority for public health authorities to “flatten the curve”, reduce the risk of overwhelming hospitals, and reduce the number of fatalities. A growing number of countries have tightened containment and mitigation measures and several are now in full lockdown with only essential operations still active. Beyond containment, complementary health measures – operational, financial, and R&D – are needed to provide effective patient care and reduce the pressure on health systems to manageable levels (OECD 2020a).

Workers, households, and companies are facing unprecedented risks as a result of the health emergency and the tight containment measures adopted by their countries. Governments have to step in with equally unprecedented measures to provide relief to prevent adding a social and economic emergency to the current health emergency.

This crisis is of a different nature than previous crises, and it requires a different timing and mix of policy responses (OECD 2020b). The spread of SARS-CoV-2 interrupted international supply chains, initially with China and increasingly with many other countries, and is forcing workers to remain at home because they are quarantined, sick, or subject to lockdowns. Such a “supply shock” is difficult to address with standard monetary and fiscal policy tools. As companies are forced to interrupt and scale down operations, they lose the capacity to continue paying their employees’ wages. This threatens household incomes and, combined with growing uncertainty, reduces household consumption – a “demand shock” that will put further pressure on companies and their employees as well as on independent workers. The economic and social response needs to help contain the epidemic, cushion its effects, and prepare the recovery.

First, workers’ exposure to the coronavirus in the workplace should be reduced to a minimum. Many OECD governments and companies have relaxed existing telework regulations or introduced new options. But if technological tools and routines were not in place beforehand, telework is not always a feasible option. Some countries are providing incentives and assistance to quickly develop teleworking capacity, especially in small and medium-sized enterprises (SMEs). Still, many activities will always require workers to be physically present, including in some sectors where workers are likely to be more exposed to the virus. Therefore, guidelines to ensure higher health and safety standards in those workplaces where telework is not possible are also necessary.

Second, sick or quarantined workers need income support so that they can afford to remain at home until they are no longer contagious. Most – but not all – OECD countries entitle workers to financial compensation during sick leave, via employer-provided sick pay and public sickness benefits. However, in some countries, statutory sick-leave compensation only covers a small fraction of the previous wage and/or is shorter than the recommended period of self-isolation for people with COVID-19 symptoms (e.g. in Korea and the US). Finally, in many countries, access to paid sick leave is limited for non-standard workers, i.e. workers without a permanent full-time job (see Figure 1). Such a gap is of particular concern when health risks are elevated for these groups, e.g. due to greater exposure to infection in the service sector (Stabile et al. 2020).

Figure 1 For non-standard workers, statutory access to sickness benefits can be limited

Statutory access to sickness benefits for non-standard workers compared to standard workers (“SW”) by contract type and incidence of employment form, 2017

Options for an immediate employment and social-policy response to COVID-19 2

Note: Gaps between standard dependent employees (full-time open-ended contract) and self-employed/temporary and part-time workers. Sickness benefits refers to income replacement (not access to healthcare). “Partial” access can arise if a) eligibility conditions, benefit amounts, or receipt durations are less advantageous for non-standard workers; b) insurance-based and non-contributory benefits co-exist and individuals can access only the latter; or c) non-standard workers can choose to declare a lower contribution base while standard workers pay contributions on full earnings (possibly subject to a ceiling). “No access”: compulsory for standard workers but non-standard workers are excluded. Not applicable: no compulsory sickness benefit schemes in the US and Korea. No information on part-time and temporary workers for Japan. *Data on self-employment incidence is missing/incomplete for Estonia, Iceland, and Luxembourg and refers to 2015 for the Slovak Republic and to 2014 for Latvia. Data on the incidence of temporary employment is missing for the US. 
Source: OECD (2020b)

Ensuring that all workers are effectively covered, extending sick-pay duration or waiving waiting periods in line with quarantine and medical recommendations, and adapting reporting requirements to access paid sick leave are key to bolstering income shocks and containing the epidemic.

Third, the large-scale closure of childcare facilities and schools now implemented in an increasing number of OECD countries is causing considerable difficulties for working parents who have to juggle work and family responsibilities. A further complication is that grandparents, who often provide informal care, are particularly vulnerable and thus required to minimise close contact with others, notably with children. Several countries (such as Austria, France, Germany, and the Netherlands) provide alternative childcare arrangements for working parents in essential services, such as health care, public utilities, logistics, and emergency services. Other countries, such as Italy and Portugal, provide financial support to workers who need to take leave. But even those who work from home may need to have their working hours and workload adapted to the circumstances.

Fourth, there is an urgent need to help companies minimise layoffs during the containment and ready for the recovery. As Garicano (2020), Fujita et al. (2020), and Giupponi and Landais (2020) have already discussed extensively on VoxEU, short-time work (STW) schemes, such as Kurzarbeit in Germany, chômage partiel in France, or Cassa Integrazione in Italy, proved very effective during the global financial crisis. They can preserve jobs in firms that experience a temporary drop in demand while providing income support to workers, even if these schemes do not come without problems (Cahuc and Carcillo 2011, Hijzen and Martin 2013, Cahuc et al. 2018). Introducing STW, as the UK or Australia did in the last few weeks, or extending and temporarily relaxing participation and conditionality requirements, as France, Germany, and Italy did, will help save millions of jobs.

No matter what measures countries take, it is likely that many workers will lose their jobs. Canada, Denmark, and the US, where accurate real-time unemployment benefit claims data are available, have already recorded unprecedented weekly increases. Adequate unemployment benefits and related income support are the fifth key element of the strategy. But not all job losers have access to such support, which is especially problematic when health insurance is tied to employment or benefit receipt. OECD analysis shows that prior to the crisis measures introduced in recent weeks, even standard workers had a significant risk of not receiving any support following a job loss in countries such as Poland, Greece, and Italy (OECD 2019). Even more worrying, the many workers in part-time fixed-term contracts, and especially own-account workers, have limited if any protection against the risk of job or income loss because of their lower contributions or overall lack of entitlement. 

Last but not least, in addition to quickly adjusting staff numbers, many firms will require financial support to be able to absorb the large drop in demand. This applies in particular to small businesses and the self-employed, and more generally to activities in the most affected sectors: transport, travel, entertainment, and culture, as Perotti (2020) and De Vito and Gomez (2020), among others, have already discussed on this site. The large majority of OECD countries have taken rapid steps to help firms cut costs, or to provide them with liquidity by permitting a deferral of tax and social contribution payments, or by setting up dedicated financial facilities.

In conclusion, the unprecedented crisis we are living through requires a package of unprecedented policies to soften the blow of the COVID epidemic to workers, households, and businesses. Many OECD countries have acted fast, taking bold measures along the lines described in this column (Figure 2 and OECD 2020b). Many of the measures are directed at the most vulnerable, but it is too early to say whether they have been successful in reaching them, particularly in countries that did not have a strong track record of using them in the past. 

Figure 2 OECD countries have taken rapid measures in response to the COVID-19 crisis

Share of OECD countries that have introduced (or announced) new measures or expanded existing ones in response to Covid-19 (as of 1 April 2020)

Options for an immediate employment and social-policy response to COVID-19 3

Source: OECD (2020), “Supporting people and companies to deal with the Covid-19 virus: Options for an immediate employment and social-policy response”, ELS Policy Brief on the Policy Response to the Covid-19 Crisis, OECD, Paris http://oe.cd/covid19briefsocial.

Careful real-time monitoring of labour market developments over the coming days and weeks will be essential to permit governments to quickly adjust these measures as the situation evolves, and to start preparing the economic recovery. 

References 

Baldwin, R and B Weder di Mauro (2020), Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes, a VoxEU.org eBook.

Cahuc, P and S Carcillo (2011), “Is short-time work a good method to keep unemployment down?”, VoxEU.org.

Cahuc, P, F Kramarz and S Nevoux (2018), “When short-time work works”, VoxEU.org.

De Vito, A. and J-P Gomez (2020) “COVID-19: Preventing a corporate cash crunch among listed firms”, VoxEU.org.

Fujita, S, G Moscarini and F Postel-Vinay (2020), “The labour market policy response to COVID-19 must save aggregate matching capital”, VoxEU.org.

Garicano, L (2020), “The COVID-19 bazooka for jobs in Europe”, VoxEU.org.

Giupponi, G and C Landais (2020), “Building effective short-time work schemes for the COVID-19 crisis”, VoxEU.org.

Hijzen, A and S Martin (2013), “The role of short-time work schemes during the global financial crisis and early recovery: a cross-country analysis”, IZA Journal of Labor Policy Vol. 2(5).

OECD (2019), OECD Employment Outlook 2019: The Future of Work, OECD Publishing, Paris.

OECD (2020a), “Beyond Containment: Health systems responses to COVID-19 in the OECD”, ELS Policy Brief on the Policy Response to the Covid-19 Crisis, OECD, Paris.

OECD (2020b), “Supporting people and companies to deal with the Covid-19 virus: Options for an immediate employment and social-policy response”, ELS Policy Brief on the Policy Response to the Covid-19 Crisis, OECD, Paris.

Perotti, E (2020), “The coronavirus shock to financial stability”, VoxEU.org.

Stabile, M B Apouey and I Solal (2020), “COVID- 19, inequality, and gig economy workers”, VoxEU.org.

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